Time for RFID: Applying RFID in the Supply Chain

RFID technology has the potential to change the way supply chains are managed, but in order to be effective businesses need to take a holistic look at the deployment.

In spite of billions of dollars of existing investments in supply chain operations, industry practitioners confirm that pallets of goods still get lost or go to the wrong destination, and stock-outs still happen for popular and presumably more profitable items due to limited visibility into supply chain processes. Combine that with the razor thin margins on some of the consumer goods products, and you have many companies and supply chain professionals across industries striving to have the ability to know exactly where all the goods are in a supply chain and verify their authenticity — a daunting task if you ask any industry practitioner.

It is equally interesting that the technology that holds the promise to resolve this problem is based on something as common as radio waves — a phenomenon we all take for granted. The anticipation of Radio Frequency Identification (RFID) technology solving the problem of effective tracking of goods in the supply chain has many customers, suppliers and vendors quite excited. Large investments are happening in this field.

While one could argue that all the hype — and money — surrounding RFID hides the practical difficulties of its implementation, it is a fact that giants such as Wal-Mart and Gillette are investing heavily in RFID technology, implementing it into their operations to solve the complex problems surrounding supply chain tracking, reporting and decision making. And both Wal-Mart and the Department of Defense (DoD) have mandated that their suppliers start using RFID to track pallets of goods in order to continue to do business with them. The sheer amount of goods these two giants order from suppliers, and the number of suppliers with which they interact, means that the mandate will most certainly have a ripple effect throughout the entire supply chain.

What is RFID?

At a very high level, an RFID system uses radio frequency to detect the presence of an object. A typical system includes a tag that is attached to an object, a reader that picks up the presence of the tag and a set of computers known as the "Savant." The Savant aggregates data from different readers, filters it and passes it on to other supply chain systems that make decisions based on the data. The tags themselves are of three types — active, passive and semi-active. Active tags have on-board battery to broadcast their presence when prompted. Passive tags don't have such battery, but rely on the reader's energy to broadcast their presence. Semi-active tags tend to act like passive tags, but may use on-board battery for other functions such as collection of environmental data the object is exposed to.

While the RFID system may not seem very different from the Universal Product Code (UPC) — bar code — system currently used to track objects, there are actually three fundamental differences. First, bar codes require a line of sight in order to be correctly read, whereas RFID tags can be read without line of sight due to radio frequency. How often have you seen a grocery clerk scan a package more than once before the bar code is properly aligned with the scanner and the price registers? Conversely, with RFID every box in a pallet full of razors or cereal, for instance, can be read at once as the pallet goes by the reader in a warehouse, allowing for more granular, item-level tracking at speeds fast enough to make the process practical. Then, the data collected from different points in the supply chain can be fed into the decision support system for better forecasting and business decision-making.

The second difference between RFID and traditional bar codes is in what is being tracked. A bar code uniquely identifies each type of item, but not each item within that type. For example, two different types of cereals will have different bar codes, but two boxes of the same cereal will have the same bar code. With more capacity to store data in an on-board chip, RFID tags can uniquely identify each item so that two boxes of cereal will have different identification numbers. While this may seem like overkill at first, it can have tremendous benefits. Recall the recent scare over mad cow disease several months back, and imagine meat producers having the ability, with RFID, to be able to track the affected meat down to a specific package on a grocery store shelf. The peace of mind with RFID from the consumer's point of view, as well as the reduced liability from the producer's standpoint, alone can justify such an investment.

The third difference pertains to tracking. Bar codes tell you about an item only when you physically bring it to the scanner. With radio frequency flooding the air around us on a continuous basis, RFID tags can, to an extent, provide active tracking. For instance, when a package tagged with RFID leaves a warehouse it can be detected automatically by one of the readers positioned at key locations in the warehouse. In a slightly different situation, an RFID-enabled package can broadcast its presence continuously, permitting a stock person searching a warehouse to know for sure that a certain package is still in the warehouse and be able to locate its whereabouts, which is useful when you consider how massive a warehouse can be and how many thousands of items it holds.

So what should a supplier do? While RFID technology has the potential to increase the efficiency of your company's supply chain and unleash new innovations, it is important to understand the issues that affect a successful deployment of RFID. Besides the technical aspects, companies should consider standards, cost, business process re-engineering and privacy concerns in order to realize the full potential of an RFID deployment.

A Deeper Look into Standards, Technology and Business Process Re-engineering

The Role of StandardsWhile RFID is an old technology and RFID tags have been around for several decades, most of the applications have been built on proprietary technology. As a result, readers made by one company have not been able read the tags made by a different company. Obviously, this hasn't been conducive to widespread adoption of the technology.

This started changing in 1999 with establishment of the Auto-ID Center at the Cambridge-based Massachusetts Institute of Technology. The Center started developing industry specifications for RFID systems. These specifications, known as Auto-ID, are driving standardization in the industry. Since October 2003, a consortium named EPC-Global (a joint venture of the Uniform Code Council (UCC) and EAN International) has taken over the responsibility to bring these specifications to the market. Many industry players, including tag and reader providers and retailers, are members.

However, the standards are still being defined, and different players are adopting different versions of the standards. For example, Wal-Mart has mandated the use of EPC Class 0 and 1 tags, initially, and may eventually move to Class 1 Generation 2 tags (Source: IDC). On the other hand, the Department of Defense (DoD) wants the tags its suppliers use to be ISO 18000-6 compliant, which is likely to happen some time in future. Therefore, a supplier embarking on Auto-ID deployment should make sure that the technology it has selected can provide an upgrade path, or understand the cost of a hard upgrade in case of incompatible systems.

The Role of TechnologyThe technology issues can be broken down into three areas: size, cost and accuracy. With technological advances, the size of the tag is becoming smaller and, as such, the possible types of applications are increasing. Tags that are smaller than 1 inch by 1 inch are now available. One drawback, however, is that the detection range of a tag deteriorates with a smaller antenna, going from several feet to several inches. But continuous advancement in this area promises significant improvement.

The second issue — cost — is a function of size, better manufacturing processes, and volume. Some companies are using processes such as fluidic assembly to make tags faster and cheaper. Additionally, as the tags are embedded in more objects, the resulting volumes are also expected to drive prices down from today's 50 cents to $1 per tag to only a few cents in future. The cheaper pricing is further likely to make the technology more attractive to retailers and their suppliers, many of whom deal with razor-thin margins on the products they sell.

The third issue — accuracy of detection — is a function of chip technology and implementation architectures. Active tags with on-board battery tend to have longer range and hence, can be detected more accurately from distance. Passive tags on the other hand, have shorter range. Passive tags are also hard to detect when next to metal and water, objects that absorb radio energy. How the system is deployed can also affect the accuracy of detection. In an environment with multiple readers, there is always the danger of one tag being read by multiple readers. This can be avoided in the software that resides in a reader or the Savant.

The Role of Business Process Re-engineeringUltimately, the success of a technology is dependent on the amount of innovation the business community drives around it. If suppliers use RFID simply as a replacement for bar codes, the use of the technology and its benefits will be limited. Also, if the suppliers only tag the cases going to Wal-Mart and the DoD as they leave their warehouse (i.e., "slap-n-ship"), they may forego the benefits of RFID with their other customers, such as being able to alert the consumer to potentially affected meat packages or signal manufacturers of potential stock-outs of popular items. The efficient deployment of RFID technology requires that companies — suppliers, manufacturers and distributors — look at it as an enabler of doing business differently, and see how they can solve key customer issues or gain a competitive differentiator using this technology.

The first step in this process has to be a holistic assessment of current business processes and issues, understanding the RFID marketplace, and training key employees. The second step is to identify focused pilots that can provide a tangible return on investment (ROI), which, in turn, can serve as the role model for determining which key business processes can benefit from RFID and how. A key factor here is the computing infrastructure needed for such a deployment. With so many RFID-enabled objects transmitting their whereabouts on a continuous basis, a great burden likely will fall on a company's back-end computing infrastructure in terms of collecting and filtering the information and routing it to the proper decision support system. As a result, the robustness and reliability of the system are key requirements for a successful RFID project.

Privacy Concerns

With new technology and capability also come new responsibilities. The prospect of a razor manufacturer being able to track every individual cartridge pack has many consumer advocates concerned about consumer privacy and the potential misuse of customer information. In reality, the short range of such small tags, the type of information being contained in the tags (only product-specific information, no individual consumer information) and the potential benefits of the technology make such concerns non-existent.

However, businesses should take this matter seriously and view it as a critical factor in adopting the technology. Businesses that explicitly indicate when they are selling products containing RFID tags, as well as the intended use of the technology, are more likely to find a receptive audience. It never hurts to educate consumers, especially when such a hefty investment is at stake.

To summarize, RFID technology has tremendous potential to change the way business is being done and the way supply chains are managed. However, in order to do this effectively, businesses need to look at the RFID deployment holistically, being aware of the issues surrounding cost, standards and privacy. For a company embarking on this journey, a basic training of the RFID landscape and an assessment of its internal capabilities is the best way to get started. One thing is certain, though — the journey may be long, but the starting point has definitely arrived.

About the Authors:Manish Bhuptani is a director and Shahram Moradpour is a senior director of Market Development at Sun Microsystems. They focus on market and partnership strategies for Sun in various emerging and established markets. Frequent speakers on emerging technologies, they also evaluate the business impact of technology solutions.